[Click eStock] "Hotel Shilla Lowers 2024 Earnings Estimates... Target Price Down"

Shinhan Investment Corp. reported an earnings shock for its third-quarter results on the 30th and also downgraded its 2024 earnings estimates. However, it expects benefits from the full-scale influx of Chinese group tourists starting in the fourth quarter. Accordingly, it maintained a 'Buy' investment rating but lowered the target price to 88,000 KRW.

Researcher Sanghoon Cho of Shinhan Investment Corp. stated, "Third-quarter sales fell 25.7% year-on-year to 1.01 trillion KRW, and operating profit dropped 71% to 7.7 billion KRW, significantly missing consensus estimates." Cho explained, "There were no major changes in the operating environment, but the worsening cost ratio and increased various expenses were disappointing."

Looking at the details, the duty-free shop (TR) continued to show poor performance with sales down 29% year-on-year due to decreased demand from Daigong. The proportion of individual travelers (FIT) is estimated to be over 50%. Operating profit turned to a loss (-16.9 billion KRW).

Researcher Cho analyzed, "The cost ratio worsened as costs increased by 30 billion KRW compared to the previous quarter," adding, "Strategic inventory liquidation ahead of changes in customer composition and exchange rate declines had an impact." He further noted, "Bonus provisions increased by 10 billion KRW compared to the previous quarter, and fixed costs related to the opening of Incheon Airport Terminal 4 also rose by 10 billion KRW."

From the fourth quarter, the full-scale influx of Chinese group tourists is expected to bring benefits due to changes in customer composition. The proportion of tourists had decreased through the THAAD issue and COVID-19, increasing dependence on Daigong and intensifying competition.

Researcher Cho evaluated, "Profitability improved due to efforts to normalize commission rates for Daigong from the beginning of the year, but sales remained sluggish. In this situation, the arrival of group tourists is like rain in a drought." Before the Hanban ban in 2016, 70% of duty-free shop customers were Chinese, of whom 60% were group tourists.

Cho diagnosed, "Group tourists can generate much higher sales than individual tourists without the same level of cost input as Daigong," adding, "Although there will be pains from inventory liquidation in the fourth quarter, this is an indispensable choice for structural improvement ahead of changes in customer composition."

Researcher Cho emphasized, "Due to increased costs, we are lowering the 2024 operating profit estimate by 14%. However, attention should be paid to Hotel Shilla's profitability improvement amid the supplier-centered market restructuring process occurring for the first time in seven years since THAAD and COVID-19."

This content was produced with the assistance of AI translation services.